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CIRCULAR No. 64/2004/TT-BTC OF JUNE 29, 2004 GUIDING THE IMPLEMENTATION OF A NUMBER OF ARTICLES OF THE GOVERNMENT'S DECREE No. 105/2004/ND-CP OF MARCH 30, 2004 ON INDEPENDENT AUDIT

Pursuant to the Government's Decree No. 86/2002/ND-CP of November 5, 2002 defining the functions, tasks, powers and organizational structures of the ministries and ministerial-level agencies;

Pursuant to the Government's Decree No. 77/2003/ND-CP of July 1, 2003 defining the functions, tasks, powers and organizational structure of the Finance Ministry;

In furtherance of the Government's Decree No. 105/2004/ND-CP of March 30, 2004 on independent audit, the Finance Ministry hereby guides the implementation of a number of articles of Decree No. 105/2004/ND-CP as follows:

I. GENERAL PROVISIONS

1. Rights of audited units

1.1. Audited units may select auditing enterprises and auditors fully satisfying the conditions for lawful profession practice in Vietnam as prescribed in Article 23 of the Government's Decree No. 105/2004/ND-CP of March 30, 2004 on independent audit (hereinafter referred to as Decree No. 105/2004/ND-CP for short) in order to sign contracts on the provision of audit services, except otherwise provided for by law.

When signing contracts on the provision of audit services, audited units may request auditing enterprises to provide their "lists of registered practicing auditors, year", already certified by the Finance Ministry.

1.2. Audited units must not select auditing enterprises, which are operating with less than 3 practicing auditors; which fail to fully meet the conditions for audit practice, or whose auditors are not on the lists of registered practicing auditors already certified by the Finance Ministry, in order to sign contracts on the provision of audit services.

1.3. The selection of auditing enterprises, if being governed by the legislation on bidding, must comply with the bidding regulation.

2. Request for changing practicing auditors and persons responsible for signing audit reports

2.1. Audited units that sign audit contracts with auditing enterprises for 3 consecutive years or more, counting from the effective date of Decree No. 105/2004/ND-CP, shall, every 3 years, have to request auditing enterprises to change:

a/ The practicing auditors responsible for auditing and signing audit reports;

b/ The persons responsible for signing audit reports, who are the directors (or the authorized persons) of auditing enterprises (or their branches).

2.2. In cases where the directorate of an auditing enterprise or the leadership of the branch of an auditing enterprise has only one practicing auditor, the audited unit may only sign the audit contract with that auditing enterprise or its branch for not more than 3 consecutive years as from the effective date of Decree No. 105/2004/ND-CP, and from the fourth year onward, must sign audit contracts with other auditing enterprises.

The request to auditing enterprises to change practicing auditors and persons responsible for signing audit reports must be stated clearly in audit contracts.

3. Right to join professional organizations

3.1. Practicing auditors and auditing enterprises are entitled to join national or international accounting and/or auditing professional organizations licensed to operate in Vietnam such as Vietnam Accounting and Auditing Association, the National Club of Chief Accountants, the UK Association of Chartered Certified Accountants (ACCA), etc.

3.2. Every practicing auditor joining a professional organization shall be an individual member of that organization. Where auditing companies join professional organizations in the capacity as collective members, they must appoint their representatives at such organizations.

3.3. The costs of joining professional organizations shall be accounted into the management costs of auditing enterprises and must be evidenced with lawful vouchers and receipts. Auditors not registering profession practice in auditing enterprises must bear the costs of joining professional organizations by themselves.

4. Compulsory audit

4.1. Annual financial statements of the following enterprises and organizations must be audited by auditing enterprises:

a/ Foreign-invested enterprises and organizations established and operating in Vietnam under Vietnamese laws, including branches of foreign-invested enterprises operating in Vietnam;

b/ Organizations engaged in credit activities, established and operating under the Law on Credit Institutions; banks of different economic sectors and the Development Assistance Fund;

c/ Financial institutions and insurance business enterprises, insurance brokerage enterprises;

d/ Particularly for joint-stock companies and limited liability companies which participate in listing and trading on the securities market, the audit shall comply with the provisions of the legislation on securities trading;

e/ For enterprises and organizations borrowing capital from banks, the audit shall comply with the provisions of the credit legislation.

4.2. The annual financial statements of the following enterprises and organizations must be audited by auditing enterprises according to the provisions of Decree No. 105/2004/ND-CP:

a/ State enterprises, including State companies, State-owned joint-stock companies, State-owned limited liability companies and enterprises with State capital accounting for more than 50% of their capital;

b/ Reports on the settlement of the completed investment projects of group A upward.

4.3. Other subjects defined by laws, ordinances, decrees and the Prime Minister’s decisions.

4.4. State enterprises, the Development Assistance Fund and investment projects of group A upward, that have already been included in the notified yearly audit plan of the State audit agency shall not be compulsorily audited by auditing enterprises.

II. SPECIFIC PROVISIONS

A. AUDITORS

1. Criteria of auditors

1.1. Vietnamese people and foreigners permitted to reside in Vietnam who fully meet the following criteria shall be recognized auditors:

a/ Having professional ethical qualities, being honest and incorruptible and having a good sense of law observance; being other than the subjects defined in Clauses 3, 4, 5, 6 and 7, Article 15 of Decree No. 105/2004/ND-CP;

b/ Having bachelor degrees in economics-finance-banking or accounting-auditing, granted by Vietnam or foreign countries and recognized by the Finance Ministry, and having been engaged in practical financial and/or accounting work for 5 years or more, or having worked as assistant auditors in auditing enterprises for 4 years or more.

If their major bachelor degrees are in domains other than economics-finance-banking or accounting- auditing, they must acquire second bachelor degrees in the above-said domains after 3 years, or 2 years for assistant auditors, and the total duration of their engagement in practical financial and/or accounting work must be full 5 years, or full 4 years or more for assistant auditors in auditing enterprises.

c/ Being able to use one of the five common languages: English, Russian, French, Chinese and German, and having a good command of computers;

d/ Having passed the auditor-recruitment exams organized by the Finance Ministry and granted auditor's certificates by the Finance Minister.

1.2. To be granted auditor's certificates by the Finance Minister, Vietnamese people and foreigners permitted to reside in Vietnam who have accounting specialist's certificates or accounting/audit certificates, issued by foreign or international accounting and/or auditing organizations and recognized by the Finance Ministry, must pass examinations in Vietnamese economic, financial, accounting and audit laws, organized by the Finance Ministry.

2. Conditions for professional practice by auditors

2.1. Audit- practicing conditions:

a/ Auditors may register to practice audit only when they fully meet the conditions for practicing auditors prescribed in Article 14 of Decree No. 105/2004/ND-CP;

b/ Auditors who concurrently work at auditing enterprises and enterprises other than auditing enterprises may register to practice audit only when obtaining written consents from the representatives at law of enterprises other than auditing enterprises.

c/ Auditors who have registered their professional practice in an auditing enterprise but now wish to register their professional practice in another auditing enterprise must acquire decisions on termination of labor contracts from the first auditing enterprise.

2.2. Auditors not on the lists of registered practicing auditors certified by the Finance Ministry must not sign audit reports.

2.3. Practicing auditors shall have their names deleted from the lists of registered practicing auditors in the following cases:

a/ Committing one of the prohibited acts of practicing auditors, defined in Article 19 of Decree No. 105/2004/ND-CP;

b/ Not practicing audit actually but deliberately registering audit practice;

c/ Committing acts of violating law or discipline or professional ethics, which are prohibited by the audit legislation.

2.4. Auditors whose names have been deleted from the lists of registered practicing auditors must not register to resume their professional practice for 3 years as from the date of deletion of their names.

2.5. Auditing enterprises that employ auditors not on the lists of registered practicing auditors, to sign audit reports, shall, together with such auditors, be sanctioned according to law provisions.

2.6. The Finance Ministry shall not certify the lists of registered practicing auditors for those auditors who have registered to practice audit but actually not practiced it.

3. Annual knowledge update for auditors

3.1. Subject to the annual knowledge update are auditors who are practicing their profession and register to continue their audit practice in the following year.

3.2. The contents of annual knowledge update include:

a/ The basics of the legislation on audit, accounting, economic management, finance, tax and relevant matters;

b/ The amended and/or supplemented provisions of the policies and/or regimes on accounting, audit, economic management, finance, tax and relevant matters.

3.3. The knowledge update duration shall be between 40 and 50 hours a year.

3.4. Forms of annual knowledge update:

a/ Intensive training, organized by the Finance Ministry or under the Finance Ministry’s authorization; or

b/ Self-training: Auditing enterprises shall themselves organize the update of knowledge for their auditors according to the requirements and contents prescribed by the Finance Ministry. Auditing enterprises must keep dossiers on the training contents, programs and duration as well as the lists of the practicing auditors who have participated in training.

3.5. After each annual knowledge-updating course, auditors must take exams regarding the updated contents, which shall be in form of tests, situation-solving exercises or essays, and pass such exams in order to register for audit practice in the following year.

4. Audit-practice registration

Annually, auditors must register audit practice with auditing enterprises according to the following regulations:

4.1. The audit-practice registration conditions for Vietnamese people:

a/ Having clear curricula vitae; being honest, professionally ethical and other than the subjects not allowed to register audit practice prescribed in Article 15 of Decree No. 105/2004/ND-CP;

b/ Having auditor's certificates issued by the Finance Ministry;

c/ Having labor contracts with auditing enterprises.

4.2. The audit-practice registration conditions for foreigners:

a/ Being permitted to reside in Vietnam for one year or more;

b/ Being professionally ethical and other than the subjects not allowed to register audit practice prescribed in Article 15 of Decree No. 105/2004/ND-CP;

c/ Having auditor's certificates issued by the Finance Ministry;

d/ Having labor contracts with auditing enterprises.

4.3. Those persons who register for audit practice for the second time onward (after the registration in the year following the year of issuance of the auditor's certificate) must also meet the condition on fully participating in the annual knowledge-updating programs according to the provisions at Point 3, Part A, Section II of this Circular.

4.4. The audit-practice registration dossier includes:

a/ An audit-practice registration application;

b/ A notarized copy of the auditor's certificate issued by the Finance Ministry or signed and stamped for certification by the director of the auditing enterprise;

c/ The documents prescribed at Point 2.1, Part A, Section II of this Circular.

Those persons who have registered audit practice for a year, if approved by the directors of auditing enterprises as fully qualified to continue their professional practice in the subsequent year, shall not have to file new dossiers.

4.5. Directors of auditing enterprises must base themselves on the auditors' applications for audit-practice registration and the regulations on audit-practice conditions to consider whether the applying auditors fully meet the profession-practice conditions in the year or not, and draw up "lists of registered practicing auditors, year" of their enterprises, to be sent to the Finance Ministry (the Department of Accounting and Auditing Regime).

5. Practicing auditors are not allowed to conduct audits in the following cases:

5.1. They are not on the announced lists of registered practicing auditors, certified by the Finance Ministry for that year.

5.2. They are providing or provided right in the preceding year the following services for the audited units:

a/ Recording accounting books;

b/ Making financial statements;

c/ Working as chief accountants;

d/ Conducting internal audit;

e/ Evaluating assets;

f/ Providing management consultancy;

g/ Providing financial consultancy;

h/ Providing tax consultancy or other services which affect their independence in relation to the audited units.

5.3. Auditors who are providing or provided in the preceding year audit services must not provide in the current year the services defined at Point 5.2, Part A, Section II.

5.4. They have economic-financial relations with the audited units such as capital contribution, purchase of stocks or bonds; capital lending; purchase or sale of other assets, or other economic-financial transactions that affect the principle of independence of auditing activities.

5.5. Their parents, spouses, children and/or blood siblings are members of the leaderships or chief accountants of the audited units.

5.6. They are deemed professionally incapable or fail to meet the conditions to conduct audits.

5.7. The audited units make requests contrary to professional ethics or professional auditing requirements or contrary to law provisions.

6. Acts prohibited for practicing auditors

6.1. Contributing capital to, borrowing or lending capital to, or buying stocks of any types from, the audited units, regardless of their value and volume.

6.2. Purchasing bonds or other assets of the audited units, which affect the principle of independence of auditing activities.

6.3. Receiving any sums of money or material benefits from the audited units, apart from service charges and expenses already agreed upon in the contracts; or abuse their positions as auditors to get other benefits from the audited units.

6.5. Leasing, lending or letting other parties to use their names and auditor’s certificates to conduct professional activities.

6.5. Working for two accounting/auditing enterprises or more at a time.

6.6. Disclosing information on the audited units, which they have acquired in the course of practicing their profession, except so consented by the audited units or otherwise provided for by law.

6.7. Signing goods-processing contracts, contracts on entrusted import-export of supplies and/or goods, goods-consumption agency or brokerage; or involving in other economic-financial transactions, which affect the principle of independence of auditing activities.

6.8. Abusing their responsibilities and/or powers to earn profits; acting in collusion with, or covering violations of, the audited units.

6.9. Signing for both the auditors responsible for auditing and the directors (or their authorized persons) in the audit reports.

6.10. Committing other acts prohibited by the legislation on audit.

B. AUDITING ENTERPRISES

1. Forms of organization and operation of auditing enterprises

1.1. As from the effective date of Decree No. 105/2004/ND-CP, auditing enterprises may be set up in only one of the two following forms: partnerships or private enterprises. Foreign-invested auditing enterprises shall be set up according to the provisions of the Law on Foreign Investment in Vietnam.

1.2. Auditing enterprises that have been set up and operating before the effective date of Decree No. 105/2004/ND-CP in the forms other than those prescribed at Point 1.1, Part B of Section II, if wishing to continue their operations, must be transformed into one of the forms prescribed at Point 1.1, Part B, Section II. The transformation must be completed by the end of April 21, 2007 at the latest.

2. Branches of auditing enterprises

2.1. Branches of auditing enterprises are set up and operate according to law provisions and provisions of Article 21 of Decree No. 105/2004/ND-CP.

2.2. In order to provide audit services and issue audit reports, branches of auditing enterprises must each have at least 2 auditors who have the auditor's certificates, and the head of the branch must have the auditor's certificate.

3. Conditions for setting up and operation of auditing enterprises

3.1. Auditing enterprises set up and operating under law provisions and the provisions of Decree No. 105/2004/ND-CP must each have at least 3 auditors possessing the auditor's certificates and at least one of the auditing enterprise's managers must be auditor having the auditor’s certificate. A person having the auditor's certificate may own only one private enterprise or be a partnership member of a partnership.

3.2. Auditing enterprises may sign contracts for the provision of audit services only when:

a/ They fully meet the audit-practice conditions prescribed in Clauses 1 and 3, Article 23 of Decree No. 105/2004/ND-CP;

b/ They have lists of registered practicing auditors already certified by the Finance Ministry according to the provisions at Point 4, Part A, Section II and Point 1, Part C, Section II of this Circular.

3.3. If they have auditors newly granted auditor's certificates or recruited, the auditing enterprises must notify the Finance Ministry of the supplemental lists of practicing auditors within 30 days as from the date such auditors are officially employed or granted auditor’s certificates.

3.4. If their practicing auditors are leaving, abandoning jobs or are deprived of the right to practice their profession, the auditing enterprises must, within 15 days as from the date the practicing auditors leave, abandon jobs or are deprived of the right to practice their profession, notify such in writing to the Finance Ministry, together with a list of those auditors.

3.5. In the course of operation, auditing enterprises must each regularly ensure that at least 3 practicing auditors work for it for the whole operation duration. If for 6 consecutive months, the auditing enterprises fail to satisfy this condition, they must stop providing audit services.

4. Right to join international accounting/auditing organizations

4.1. Auditing enterprises may join only those international accounting/auditing organizations that have branches in the countries other than the countries where they are headquartered.

4.2. The fees of joining international accounting/auditing organizations are accounted into the enterprises' business expenses according to the actual expenses and must be evidenced by lawful vouchers and/or receipts.

4.3. Within 30 days after being accepted as members of international accounting/auditing organizations, the auditing enterprises must notify the Finance Ministry of their membership and send to the latter the documents introducing the international accounting/auditing organizations of which they are members as well as their commitments regarding the member's interests and responsibilities.

5. Purchase of professional liability insurance or setting up of professional risk reserve funds

5.1. Auditing enterprises must purchase professional liability insurance or set up professional risk reserve funds to create sources of payment of compensations for damage caused to their clients and users of audit results at their faults.

5.2. Auditing enterprises may purchase professional liability insurance from insurance enterprises lawfully operating in Vietnam. In cases where insurance enterprises operating in Vietnam are unable to provide professional liability insurance service, auditing enterprises may purchase insurance from foreign insurance enterprises. Foreign-invested auditing enterprises and auditing enterprises being members of international auditing organizations may purchase professional liability insurance from foreign insurance enterprises. The insurance costs shall be accounted into the enterprises' business expenses according to the actually paid insurance premiums and must be evidenced by lawful vouchers and/or receipts.

5.3. In cases where auditing enterprises do not purchase professional liability insurance, they must set up professional risk reserve funds, which shall be accounted into their business expenses with the annual deduction level of between 0.5% and 1% of their audit service turnovers (without VAT), depending on their respective financial capability.

5.4. When having to pay damages to their clients and users of audit results for their faults, auditing enterprises shall be indemnified by insurance enterprises according to the concluded insurance policies, or use their professional risk reserve funds to pay those damages.

Where the payable damages are bigger than the indemnities paid by the insurance enterprises or than the balance of the professional risk reserve funds, the difference shall be accounted into the enterprises' business expenses or deducted from the business capital after being offset with the compensations paid by the damage-causing units and/or individuals (if any) according to law provisions.

5.5. When, by the end of a fiscal year, the balance of the professional risk reserve funds is equal to 10% of the audit service turnovers in that year, deductions shall not be further made for the professional risk reserve funds.

6. Responsibilities of auditing enterprises

6.1. Auditing enterprises shall take responsibility before law, before their clients under the signed audit contracts and be partly answerable to users of audit results and provided services. Auditing enterprises shall be answerable to users of audit results only when the latter:

a/ Have benefits directly related to the results of the audit services regarding the audited units on the date of signing the audit reports; and

b/ Have sound knowledge of the financial statements and bases of elaboration of financial statements, which are accounting standards, accounting regimes and relevant law provisions; and

c/ Have used cautiously information in the audited financial statements.

6.2. The level of damage caused by auditing enterprises, for which they have to pay compensations to their clients, shall be agreed upon by the two parties or determined by the competent agency under law provisions. The sanctioning forms and levels shall be agreed upon by the two parties, which may include:

a/ The termination of the signed audit contracts;

b/ The prohibition to sign audit contracts in the subsequent years;

c/ The deduction of the contractual auditing charges;

d/ A fine of at most 10 times the auditing charges of the contracts subject to sanction that year.

C. STATE MANAGEMENT OVER INDEPENDENT AUDITING ACTIVITIES

1. Unified management of the lists of independent practicing auditors and auditing enterprises in the whole country

1.1. Within 30 days as from the date of issuance of business registration certificates, auditing enterprises must notify the Finance Ministry of the information related to them and their establishment, together with their charters, business registration certificates and tax registration papers.

1.2. Annually, before October 30, auditing enterprises must notify the lists of their practicing auditors to the Finance Ministry, together with the practice registration dossier of each auditor.

1.3. Within 5 working days as from the date of receiving the notices on the lists of registered practicing auditors as prescribed, the Finance Ministry shall certify the lists of auditors that fully meet the conditions to practice their profession in that year.

2. Publicization of the lists of auditing enterprises and practicing auditors

2.1. Publicization time limit:

a/ Biennially, the Finance Ministry shall publicize the lists of registered practicing auditors and auditing enterprises, and notify such to the provincial/municipal tax agencies and business registration agencies;

b/ In December every year, the Finance Ministry shall notify the provincial/municipal tax agencies and business registration agencies (which receive enterprises' financial statements) of the certified lists of auditing enterprises that fully meet the conditions to provide audit services.

2.2. Forms of publicization: Issuance of publications or written notices.

2.3. Contents of publicization:

a/ The list of registered practicing auditors for each auditing enterprise, that includes: their full names, professional qualifications, the serial numbers of auditor's certificates and other information;

b/ The list of auditing enterprises that fully meet the conditions to provide audit services, that includes: the companies' names, their head-offices' addresses, the number of practicing auditors and other information.

2.4. On the basis of the Finance Ministry's notices on the lists of auditing enterprises and practicing auditors that fully meet the conditions to provide audit services, the tax agencies and business registration agencies shall not accept those financial statements that have been audited by auditing enterprises and auditors not yet certified by the Finance Ministry. Tax agencies must notify the Finance Ministry of the enterprises that have hired unqualified auditing enterprises to conduct the audits.

2.5. If through inspection or notification by clients or financial statement-receiving agencies and verification, the Finance Ministry determines that auditing enterprises have violated regulations on audit practice, it shall handle violations of the legislation on independent audit according current regulations.

2.6. The funding for publicization of the lists of practicing auditors shall be contributed by auditing enterprises and accounted into their business expenses according to their actual contributions and within the law-prescribed limit.

3. Responsibility to provide information and to supervise the quality of independent auditing activities

3.1. Annually on February 15 at the latest, auditing enterprises must report in writing to the Finance Ministry on their major business targets of the preceding year and on the targets related to the knowledge update for their practicing auditors.

3.2. The Finance Ministry or professional accounting/auditing organizations authorized by the Finance Ministry shall have to examine and supervise the quality of auditing activities, and inspect the observance of Decree No. 105/2004/ND-CP as well as guiding documents by auditing enterprises.

III. IMPLEMENTATION ORGANIZATION

1. This Circular takes effect 15 days after its publication in the Official Gazette.

2. This Circular replaces the Finance Ministry's Circular No. 22-TC/CDKT of March 19, 1994 guiding the implementation of the Regulation on independent audit in the national economy, issued together with the Government's Decree No. 07/CP of January 29, 1994 and the Finance Ministry's Circular No. 107/2000/TT-BTC of October 25, 2000 guiding the registration of audit practice. The previous regulations on independent audit, which are contrary to this Circular, are hereby annulled.

3. The ministries, branches, People's Committees, Finance Departments and Tax Departments of the provinces and centrally-run cities shall have to guide enterprises to implement this Circular.

Any problems arising in the course of implementation should be reported to the Finance Ministry for study and settlement.

For the Finance Minister

Vice Minister
TRAN VAN TA